A convertible note is a loan that turns into equity — and unlike a SAFE, it accrues interest the whole time it's outstanding. When it converts, it's the principal plus that accrued interest that buys shares, not just the principal. It's a small line most founders skip, and it quietly hands the note-holder extra ownership. Here's the exact arithmetic.
The common convention is simple, non-compounding interest accrued from issuance to conversion:
principal + interest = principal × (1 + annual_rate × months ÷ 12)That grown-up amount then converts at the note's cap or discount exactly like a SAFE (the investor takes whichever gives the lower price). The longer the note sits before your priced round, the more interest accrues — and the more shares it buys.
Step one — accrue the interest:
250,000 × (1 + 0.06 × 14 ÷ 12) = 250,000 × (1 + 0.07) = 250,000 × 1.07 = $267,500 ← this is what converts, not $250,000Step two — convert $267,500 at the $10M cap. In this round the cap price works out to ≈ $1.0579/share, so:
267,500 ÷ 1.0579 = 252,864 shares (2.24% of the post-round company)If you'd modeled only the $250,000 principal, you'd have projected ~236,000 shares — about 17,000 shares light, roughly 0.15 of a point you handed over without noticing.
| Holder | Shares | Ownership |
|---|---|---|
| Founders | 9,200,000 | 81.5% |
| Note ($267,500 converts on cap) | 252,864 | 2.24% |
| New round investors | 1,838,057 | 16.28% |
| SAFE | Convertible note | |
|---|---|---|
| Accrues interest | No | Yes — grows what converts |
| Has a maturity date | No | Yes — can force conversion/repayment |
| Converts on cap/discount | Yes | Yes (on principal + interest) |
The report grows every note to principal-plus-interest, converts it on its cap or discount, and shows the share count and point cost alongside your SAFEs.
Try the free estimate Get the report — $390